Recession and Low Mortgage Volume Cycle Advantages: Part One

Many insiders say the mortgage market has been in a recession before everyone started fretting over how aggressive the U.S. Federal Reserve’s interest rate hikes and monetary policy efforts would control inflation to avoid a full-blown U.S. recession. 

According to the Wall Street Journal, lumber prices (which have helped keep construction costs high and the housing inventory low) began their descent from sky-high levels this spring after the central bank began raising rates, largely to cool the housing market. While U.S. recession fears still run high, inflation eased to 8.5% in July and the Fed may slow down its rate increases, even though it remains close to a four-decade high. 

Housing inventory shortages due to higher rates, inflation and supply chain disruptions unavoidably transfer cost increases to borrowers, keeping the loan volume down. Compared to recent years of historically low-interest rates, in 2022, lower mortgage origination volumes and margin compression continue to challenge lenders of all sizes. According to a June 2022 survey, refinance demand fell by 75% and purchase volume fell by 21% compared to the same time last year. 

In a few years, lenders switched from staff shortages and automation challenges to layoffs, very low refinancing and purchase loan volumes, and critical loan processing technology adoptions that supplement staff in a downsizing cycle, both typical byproducts of market boosts and busts. 

Since the preceding mortgage boom that forced lenders to cater to unprecedented origination volumes and improve business operations simultaneously has passed, now is the best time to revisit and fix the operational flaws that challenged lenders during the busy times.  

Recurrent Technology Education Matters

Lenders need to stay in the know. The task of perennial mortgage professional education about the ever-changing efficiency-building benefits of technology may ultimately fall on the shoulders of partner fintechs. 

VirPack is one such company. It streamlines loan-processing solutions and finds the processes lenders need to manage mortgage demand fluctuations without losing any business or having to shut down.

This is the time to invest in technology and focus on long-term benefits. Our software promise is to perpetually adjust existing tools and introduce new, user-requested options that increase loan underwriting efficiency. 

Avoid Stare-and-Compare Costs 

Ideally, the goal is to reduce the mortgage underwriting process, at least to the previous 30 - 45 days, down from the up to 120 days it still takes many lenders to close a loan. 

The average underwriter earns roughly $60 per hour and can spend four hours a day verifying the information on file is in line with the numerous documents received and produced. This process is known as stare-and-compare, which is not necessarily the best way to use underwriters’ time and their employers’ money. When technology can provide this service, employers can avoid the snowball effect of stare-and-compare time and cost efficiency losses across the notoriously long mortgage chain.

The underwriting process requires time and costs most mortgage professionals considerably in critical underwriting pain points. Technology helps reduce such costs and speeds up the loan closing process introducing efficiencies designed to free up time underwriters can use to increase the volume or tend to other operational needs when the volume is down.

While no industry wants a recession, mortgage companies have a great opportunity to use this downtime to implement new business processes that will enhance the lending cycle for when the market inevitably takes a turn and loan volumes increase. 

Stay tuned for part two of this series in late August by subscribing to our blog.